More annual reports from Westshore Terminals Income Fund:
2023 ReportWESTSHORE TERMINALS INVESTMENT CORPORATION ANNUAL REPORT 2013 W estshore Terminals Investment Corporation owns all of the limited partnership units of Westshore Terminals Limited Partnership, a partnership established under the laws of British Columbia (“Westshore”). It derives its cash inflows from its investment in Westshore by way of distributions on its limited partnership units. Westshore operates a coal storage and loading terminal at Roberts Bank, British Columbia, which is the largest coal loading facility on the west coast of the Americas. The principal office of the entities is located at 1800 - 1067 West Cordova Street, Vancouver, British Columbia, V6C 1C7. Table of Contents Financial Highlights Directors' Letter and Report to Shareholders Management's Discussion and Analysis Consolidated Financial Statements Corporate Information 1 2 4 20 47 Westshore Terminals Investment Corporation Financial Highlights (In thousands of Canadian dollars except per share and Note Receipt amounts) Tonnage (in thousands) Revenue Coal loading Other Profit for the period Profit for the period per share Interest paid/accrued on Holdings Notes Interest paid/accrued per Note Receipt Dividends declared Dividends declared per share Shares outstanding at December 31 Share Trading Statistics High Low Close Annual Volume 2013 2012 (1) 30,094 26,094 $ $ $ $ $ $ $ $ $ $ $ $ 286,703 9,022 295,725 133,426 1.80 - - 98,010 1.32 74,250,016 36.17 25.69 34.61 27,855,000 $ $ $ $ $ $ $ $ $ $ $ $ 232,442 8,253 240,695 64,657 0.87 19,491 0.263 71,651 0.96 74,250,016 30.15 22.90 27.55 22,920,000 (1) Certain 2012 amounts have been restated due to the adoption of IAS 19R (amended employee benefits standard). Further details can be found in the “Changes in Accounting Policies” section of this document. 1 Westshore Terminals Investment Corporation Directors’ Letter and Report to Shareholders Dear Shareholder: 2013 represented a year of many challenges and opportunities for Westshore and included total throughput volumes of 30.1 million tonnes, the highest level in Westshore’s history. During the first two months of 2013, Westhore was challenged with repair efforts to the trestle at Berth 1, which was rendered inoperable following the damage caused by the Cape Apricot, a cape sized vessel, which ran through it in December 2012. Repair and clean up efforts proceeded very smoothly and expeditiously under the circumstances, and there were no environmental issues. Insurance proceeds of $32.3 million were recovered from Westshore’s insurers during the year and a further $6.2 million (for a total of $38.5 million) will be recovered by the second quarter of 2014. An action on behalf of Westshore and its insurers against the Cape Apricot and its insurers to recover damages caused by the incident continues. During 2013, the board of directors also approved the next capital upgrade project which will involve the replacement of the three older stacker reclaimers (all between 30 - 40 years old), replacement of a shiploader at Berth 1 (approximately 30 years old) and the replacement and consolidation of the current office and maintenance shop complex (approximately 40 years old). As announced by Westshore on March 18, 2014 following extensive additional engineering work and negotiations with machine suppliers, the budget for the capital upgrade project has been updated and is now anticipated to cost approximately $275 million. The increased costs are attributable to a10% deterioration in the Canadian/U.S. dollar exchange rate, upgraded machine design and an increase in attributable B.C. PST. The increase in up front capital costs is anticipated to be more than recovered in reduced maintenance costs and reduced downtime (allowing for better continuous productivity) over the life of the stacker reclaimers. Permits necessary to proceed with these upgrades have been obtained and the total project is anticipated to be completed in 2018. Once the upgrade is complete, Westshore will have new equipment to enable it to sustain the current rated capacity of 33 million tonnes with the potential to add 2-3 million tonnes of further capacity. The new equipment is expected to be delivered and installed over the next 4-5 years, in a phased sequence so as to minimize the disruptions to the operations. This project does not increase Westshore’s overall operational footprint. Once fully operational, the new equipment is projected to increase the potential rated capacity at the terminal by 2-3 million tonnes per year. Actual throughput increases will be dependent on a number of factors outside of Westshore’s control, including the performance of the other parties along the coal chain (rail and ship) and overall demand for coal. In any event, the new equipment will enable Westshore to maintain higher throughput levels over the longer term. Upon completion, this project will also conclude a ten-plus year, $380 million capital upgrade of the terminal resulting in a total increase in rated throughput capacity from 23 million tonnes to 35-36 million tonnes (representing a capital cost per tonne of expansion of roughly $30-31/tonne, a very competitive cost for capacity upgrades by international industry standards), and effectively result in a newer, more modern and better-equipped terminal, capable of maintaining higher throughput levels on a sustainable basis. These amounts do not include an additional $20 million plus in improved and updated environmental systems over the same period. In 2013, Westshore also spent $14 million to upgrade its environmental systems, including new state of the art spray towers for dust suppression. 2 Westshore Terminals Investment Corporation Directors’ Letter and Report to Shareholders With customer agreements currently in place, which were secured in 2011 and 2012, most of Westshore’s capacity is committed through to 2021. For 2014, the average loading rate is expected to be slightly higher than in 2013 and total throughput is anticipated to be 31-32 million tonnes. We look forward to all the opportunities and challenges the coal markets are expected to bring. For the Board of Directors, (Signed) “William Stinson” William Stinson Chairman of the Board of Directors Vancouver, B.C. March 18, 2014 3 Westshore Terminals Investment Corporation Management’s Discussion & Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with information contained in the Consolidated Financial Statements of Westshore Terminals Investment Corporation (“the Corporation”) and the notes thereto for the year ended December 31, 2013. This discussion and analysis has been based upon the consolidated financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). This discussion and analysis is the responsibility of management of the Corporation. Additional information and disclosure can be found on SEDAR at www.sedar.com. Unless otherwise indicated, the information presented in this Management’s Discussion and Analysis (“MD&A”) is stated as at March 18, 2014. All amounts are presented in Canadian dollars unless otherwise noted. Caution Concerning Forward-Looking Statements This MD&A contains certain forward-looking statements, which reflect the current expectations of the Corporation and Westshore (as defined below) with respect to future events and performance. Forward-looking statements are based on information available at the time they are made, assumptions by management, and management’s good faith belief with respect to future events. They speak only as of the date of this MD&A, and are subject to inherent risks and uncertainties, including those risk factors outlined in the annual information form of the Corporation filed on www.sedar.com, that could cause actual performance or results to differ materially from those reflected in the forward-looking statements, historical results or current expectations. Forward-looking information included in this document includes statements with respect to future revenues, expected loading rates, strength of markets for metallurgical and thermal coal, expected throughput volumes, future throughput capacity, the proportion of throughput expected to be shipped at variable rates, the effect of Canadian/U.S. dollar exchange rate, the future cost of post-retirement benefits, customer contract renegotiations, cost of and timing to complete capital projects and the anticipated level of dividends. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether, or the times at which, such performance or results will be achieved. There is significant risk that estimates, predictions, forecasts, conclusions and projections will not prove to be accurate, that assumptions may not be correct and that actual results may differ materially from such estimates, predictions, forecasts, conclusions or projections. Readers of this MD&A should not place undue reliance on forward-looking statements as a number of risk factors could cause actual results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. Specific risk factors include global demand and competition in the supply of seaborne coal, the ability of customers to maintain or increase sales or deliver coal to the Terminal (as defined below), fluctuations in exchange rates, and the Corporation’s ability to renegotiate key customer contracts on favourable terms or at all. See the risk factors outlined in the annual information form referred to above. 4 Westshore Terminals Investment Corporation Management’s Discussion & Analysis of Financial Condition and Results of Operations General The Corporation was incorporated under the British Columbia Business Corporations Act on September 28, 2010 and is domiciled in Canada. The registered and head office of the Corporation is located at Suite 1800, 1067 West Cordova Street, Vancouver, British Columbia, V6C 1C7. The Corporation owns all of the limited partnership units of Westshore Terminals Limited Partnership (“Westshore”), a partnership established under the laws of British Columbia. Prior to 2011 those units were owned by Westshore Terminals Income Fund. The Corporation derives its cash inflows from its investment in Westshore by way of distributions on Westshore’s limited partnership units. Westshore operates a coal storage and loading terminal at Roberts Bank, British Columbia (the “Terminal”). Substantially all of Westshore’s operating revenues are derived from rates charged for loading coal onto seagoing vessels. Westshore’s results are significantly affected by the volumes of coal shipped by different customers for sale in the export market, the rates per tonne charged by Westshore and Westshore’s costs. Contracts entered into over the last two years provide customer volume commitments, much of which are at fixed rates, for approximately 90% of the Terminal’s estimated current capacity through to 2021. Shipments under those contracts are expected to provide a stable base for revenues over the next several years, with the possibility of increased revenues from higher than committed shipments and increased rates under certain contracts that provide a limited element of price participation. This MD&A has been prepared by the Corporation to accompany the financial results of the Corporation for the financial year ended December 31, 2013. Structure The following chart illustrates the Corporation’s primary structural and contractual relationships. The Corporation holds all of the limited partnership units of Westshore. Westshore Terminals Ltd. (the “General Partner”) is the general partner of Westshore. Westar Management Ltd. (the “Manager”) provides management services to Westshore and administrative services to the Corporation, and appoints three of the seven directors of the General Partner. Details of these arrangements will be included in the Information Circular for the Corporation’s 2014 Annual Meeting. 5 Westshore Terminals Investment Corporation Management’s Discussion & Analysis of Financial Condition and Results of Operations Shareholders Common Shares Westshore Terminals Investment Corporation Administration Agreement Westar Management Ltd. LP Units Westshore Terminals Ltd. Governance Agreement Westshore Terminals LP General Partner Management Agreement This MD&A refers to certain measures other than those prescribed by IFRS. These measures do not have standardized meanings and may not be comparable to similar measures presented by other corporations. They are however determined by reference to the Corporation’s financial statements. These non-IFRS measures are discussed because the Corporation believes they provide investors with useful information in understanding the results of the Corporation’s and Westshore’s operations and financial position. 6 Westshore Terminals Investment Corporation Management’s Discussion & Analysis of Financial Condition and Results of Operations Selected Financial Information The following financial data is derived from the Corporation’s audited consolidated financial statements for the years ended December 31, 2013, 2012 and 2011, which were prepared in Canadian dollars using IFRS. Revenue Profit before taxes Profit for the period Profit for the period per share(1) Interest paid/accrued on Holdings Notes(2) Interest paid/accrued per Note Receipt Dividends declared Dividends declared per share Total assets Total long term liabilities 2013 $ 295,725 179,912 133,426 1.80 - - 98,010 1.32 632,994 77,415 2012(3) $ 240,695 86,005 64,657 0.87 19,491 0.263 71,651 0.96 588,397 89,780 2011 $ 212,837 58,924 42,993 0.58 38,981 0.525 40,095 0.54 569,091 428,215 (1) The number of Common Shares outstanding for all years was 74,250,016. (2) Prior to July 1, 2012 the Corporation’s subsidiary Westshore Terminals Holdings Ltd. had outstanding Notes (the “Holdings Notes”) that were represented by Note Receipts that traded with the Corporation’s common shares. (3) Certain 2012 amounts have been restated due to the adoption of IAS 19R (amended employee benefits standard). Further details can be found in the “Changes in Accounting Policies” section of this document. The following tables set out selected consolidated financial information for the Corporation on a quarterly basis for the last eight quarters. (In thousands of Canadian dollars except per share and Note Receipt amounts) Revenue Profit before income taxes Profit for the period Profit for the period per share Dividends declared Dividends declared per share Three Months Ended Dec 31, 2013 $ 78,135 42,253 31,476 0.42 24,503 0.33 Sep 30, 2013 $ 81,347 39,778 29,470 0.40 24,503 0.33 Jun 30, 2013 Mar 31, 2013 $ 78,805 54,249 39,761 0.54 24,503 0.33 $ 57,438 43,632 32,719 0.44 24,503 0.33 7 Westshore Terminals Investment Corporation Management’s Discussion & Analysis of Financial Condition and Results of Operations (In thousands of Canadian dollars except per share and Note Receipt amounts) Revenue Profit before income taxes Profit for the period Profit for the period per share Interest paid/accrued on Holdings Notes Interest paid/accrued per Note Receipt Dividends declared Dividends declared per share Three Months Ended Dec 31, 2012 $ 55,346 22,976 17,206 0.23 - - 20,419 0.27 Sep 30, 2012 $ 71,211 37,223 27,917 0.38 - - 24,502 0.33 Jun 30, 2012 Mar 31, 2012 $ 65,581 20,682 15,690 0.21 9,745 0.131 14,108 0.19 $ 48,557 5,124 3,844 0.05 9,745 0.131 12,622 0.17 (1) Certain 2012 amounts have been restated due to the adoption of IAS 19R Summary Description of Business General Westshore operates a coal storage and loading facility at Roberts Bank, British Columbia that is the largest coal loading facility on the west coast of the Americas. Westshore operates on a throughput basis and receives handling charges from its customers based on volumes of coal exported through the Terminal. Westshore does not take title to the coal it handles. Market conditions for coal affect the competitiveness of Westshore’s customers and, together with changes in customers’ mine output, affect the volume of coal handled by Westshore. Westshore handles coal from mines in British Columbia and Alberta, as well as from mines in the north-western United States. Coal shipped from the mines owned by Teck, which is Westshore’s largest customer, accounted for 56% of Westshore’s throughput by volume in 2013 (2012 –57%). Coal is delivered to the Terminal in unit trains operated by the Canadian Pacific, CN and BNSF Railways and is then unloaded and either directly transferred onto a ship or stockpiled for future ship loading. Ultimately, the coal is loaded onto ships that are destined for approximately 20 countries world-wide, with the largest volumes being shipped to Asia. Markets & Customers Shipments of coal through the Terminal by destination for the past three years were as follows: 8 Westshore Terminals Investment Corporation Management’s Discussion & Analysis of Financial Condition and Results of Operations Shipments by Destination (Expressed in thousands of metric tonnes) Korea China Japan Europe Taiwan S. America Other Total 2013 Tonnes 11,906 6,497 6,291 1,712 1,656 1,294 738 30,094 % 40 22 21 6 5 4 2 100 2012 Tonnes 9,185 4,894 5,256 2,372 1,374 2,474 539 26,094 % 35 19 20 9 5 10 2 100 2011 Tonnes 11,761 2,412 5,606 3,684 447 2,810 586 27,306 % 43 9 21 13 2 10 2 100 During 2013, 60% of Westshore’s volume was metallurgical coal (61% in 2012), 39% was thermal coal (38% in 2012) and 1% was petroleum coking coal in both years. Of the 6.5 million tonnes of coal shipped to China, 5.2 million tonnes were metallurgical coal, and approximately 1.3 million tonnes were thermal coal, of which 0.4 million tonnes was from a Canadian customer. Of the coal shipped by Westshore’s US customers, 8.4 million tonnes of the 9.3 million tonnes was shipped to Korea and Japan, with the balance shipped to China. Any weakening in the market for seaborne thermal coal could materially affect the ability of Westshore’s thermal coal customers to sustain sales at the levels experienced in 2012 and 2013. Westshore’s customers compete with other suppliers of coal throughout the world. With respect to metallurgical coal, Australian coal mines are the most significant competitors. Over the last decade there have been significant variations in the supply-demand balance in seaborne metallurgical coal, resulting in significant variations in the prices obtained by Westshore’s customers. Prices for metallurgical coal are now being established on a quarterly basis. Pricing of coal is crucial to the results of Westshore’s customers who must obtain adequate prices to sustain their operations. Westshore has limited direct exposure to rates that vary with coal prices. With its five mines in British Columbia and one in Alberta, Teck is Westshore’s largest customer. It is the second largest supplier of seaborne hard coking coal in the world. Westshore’s current contract to handle coal from Teck’s mines runs to March 31, 2021. Under this contract, Teck has committed to ship not less than 19 million tonnes per contract year, at fixed rates. Westshore expects that Teck will ship most of the remaining coal from its mines through Neptune Terminals, with some being shipped through Ridley Terminals in Prince Rupert. Westshore has a contract with Coal Valley Resources Ltd. (formerly Luscar Ltd.) (“Coal Valley”) which covers thermal coal from the Coal Valley mine and the Obed mine. Westshore’s contract with Coal Valley runs to 2022. During 2013, Coal Valley shipped 2.0 million tonnes of thermal coal through the Terminal compared to 2.2 million tonnes in 2012. The pricing mechanism under this contract is based on fixed rates with escalation. Westshore’s contract with Grande Cache Coal Corporation (“Grande Cache”) for handling coal produced from its operations in Alberta runs to March 31, 2022. Westshore loaded 1.7 million tonnes under this contract in 2013, compared to 1.1 million tonnes in 2012. The contract with Grande Cache provides for shipments through Westshore exclusively. 9 Westshore Terminals Investment Corporation Management’s Discussion & Analysis of Financial Condition and Results of Operations Westshore has entered into contracts with U.S. thermal coal producers that run to 2022. Contracts with these producers provide for a variable rate based on the U.S. dollar price received for the product, subject to a floor price. These producers accounted for approximately 31% of Westshore’s throughput in 2013. Labour Labour agreements with all three locals of the International Longshore and Warehouse Union (the longshoremen, foreman and the clerical workers) are in place and expire on January 31, 2016. Facilities Commencing in 2007, Westshore undertook two significant equipment upgrades at an aggregate cost of approximately $110 million. Prior to those improvements the Terminal’s functional throughput capacity was assessed at somewhat less than 24 million tonnes per annum. The first program, completed in 2010, involved the addition of a fourth stacker/reclaimer and associated conveyor system, and conversion of the second barrel of the tandem rotary dumper to accommodate shorter aluminum rail cars, the use of which has become the industry norm. All four stacker/reclaimers were automated and other systems were updated. This program increased the Terminal’s capacity, allowing it to handle a then record 27.3 million tonnes in 2011. Despite this program Westshore was unable to make commitments to its existing customers for all the levels of service they were requesting. Accordingly, Westshore undertook a further capital upgrade consisting of replacing the existing single dumper with a double dumper and addition of related equipment, at a cost of $45 million. This project was completed late in 2012 and initially was partly financed with bank debt. In addition, a significant maintenance program was completed in 2012 to replace chutes in four transfer towers at a cost of $12 million to improve the flow of product. It is now estimated that the terminal throughput capacity is approximately 33 million tonnes, under current and foreseeable operating conditions. The interruption of operations at Berth 1 prevented normal operations during January and early-February 2013. In early 2013, Westshore approved a further capital expenditure program to replace the three oldest stacker- reclaimers and a shiploader at Berth 1 with new equipment. By acquiring this new equipment, Westshore will be able to significantly enhance its operational efficiencies in several respects, including standardizing spare parts, and reduction in overall maintenance downtime and costs involved in maintaining older equipment. The new stacker- reclaimers will have an anticipated useful life of 30-40 years. The project will also involve combining the various structures on the site including the 42 year old outdated and inefficient administration, operations and maintenance buildings into one consolidated complex. It will also result in storage optimization. The project is expected to be completed in stages ending in 2018. No additional equipment is being added to the site, nor is the site footprint being increased. Any additional throughput capacity would only result from the improved productivity of the new equipment, operating efficiencies, and reduced maintenance downtime, and would only be utilized if other participants in the coal chain can also improve efficiencies and increase sales. Currently, it is estimated that an additional 2-3 million tonnes per year might be achievable, but in any event not before 2018. 10 Westshore Terminals Investment Corporation Management’s Discussion & Analysis of Financial Condition and Results of Operations The new equipment is expected to be delivered and installed over the next 4-5 years, in a phased sequence so as to minimize the disruptions to the operations. This project does not increase Westshore’s overall operational footprint. Once fully operational, the new equipment is projected to increase the potential rated capacity at the terminal by 2-3 million tonnes per year. Actual throughput increases will be dependent on a number of factors outside of Westshore’s control, including the performance of the other parties along the coal chain (rail and ship) and overall demand for coal. In any event, the new equipment will enable Westshore to maintain higher throughput levels over the longer term. Upon completion, this project will also conclude a ten-plus year, $380 million capital upgrade of the terminal resulting in a total increase in rated throughput capacity from 23 million tonnes to 35-36 million tonnes (representing a capital cost per tonne of expansion of roughly $30-31/tonne, a very competitive cost for capacity upgrades by international industry standards), and effectively result in a newer, more modern and better-equipped terminal, capable of maintaining higher throughput levels on a sustainable basis. These amounts do not include an additional $20 million plus in improved and updated environmental systems over the same period. In 2013 Westshore spent $14 million for new, state of the art dust suppression systems and related environmental control equipment which was completed in 2013. Results of Operations Westshore loaded 30.1 million tonnes during 2013 as compared to 26.1 million tonnes during 2012. First quarter 2013 shipments and revenues were negatively impacted by the loss of use of Berth 1 following the damage to the trestle at Berth 1, as a result of which Westshore lost approximately 3 million tonnes of shipments from December 7, 2012 to February 7, 2013. Coal loading revenue increased by 23.4% to $286.7 million in 2013 compared with $232.4 million in 2012. The increase was due to higher tonnage at a higher average rate. In the fourth quarter of 2013, Westshore shipped 7.5 million tonnes, compared with 5.6 million tonnes shipped during the same period in 2012, which was impacted by the Berth 1 outage. The average loading rate in 2013 was $9.53 per tonne compared to $8.91 per tonne for 2012. Other income, consisting of wharfage and ancillary services income, increased from $8.3 million in the 2012 to $9.0 million in 2013. Operating expenses increased by 9.6% from $120.6 million in 2012 to $132.2 million in 2013, consistent with the increased volume loaded. Administration expenses increased by 32% from $10.0 million in 2012 to $13.2 million in 2013 primarily due to an increase in the incentive fee to Westar Management Ltd. (the “Manager”). An additional $6 million of insurance proceeds relating to the Berth 1 incident were recorded in the fourth quarter of 2013 ($32.3 million received for the year). Accounting standards require these proceeds to be recorded as income. $6.2 million of additional insurance recoveries from Westshore’s insurers are anticipated to be fully recovered during the second quarter of 2014for total recoveries of $38.5 million. Recovery from the MV Cape Apricot (and/or its insurers) is also being pursued, but the ultimate amount and timing of any of such recoveries is unknown at this time. Westshore has used $18.3 million of the insurance proceeds to cover its out of pocket expenses to repair and rebuild the damaged trestle at Berth 1 which were incurred in Q4 2012 and the first half of 2013, with remaining amounts to 11 Westshore Terminals Investment Corporation Management’s Discussion & Analysis of Financial Condition and Results of Operations be applied to the $275 million capital upgrade projects that will take place over the next 4-5 years (refer to “Liquidity and Capital Resources” below). Net finance costs for 2013 were lower than 2012 as there is no longer interest on the Holdings Notes. Interest expense in 2013 was $0.7 million compared to interest income of $0.2 million for the prior year. In the prior year, interest expense on the long-term debt was capitalized to property, plant and equipment as the new dumper was constructed, whereas interest expense on outstanding debt incurred in the current year was expensed. The net interest cost components of the employee benefit plan expense are now recorded in net finance costs in accordance with the new employee benefits accounting standard adopted in the current year. Net employee benefit interest of $2.9 million was recorded in 2013, consistent with $2.7 million net employee benefit interest in 2012. Income tax expense increased to $46.5 million in 2013 from $21.3 million in 2012. The increase resulted from an increase in profit before income taxes compared to the prior year and an increase in the tax rate. The increase in profit before income taxes was driven by higher tonnes shipped, higher loading rates, insurance proceeds received and the elimination of interest expense on the Holdings Notes Other comprehensive income increased from a $2.9 million loss in 2012 to a $5.8 million gain in 2013. Other comprehensive income includes actuarial gains and losses on the defined benefit post-retirement obligations which are primarily impacted by the discount rate used and the plan asset value performance. The discount rate used to calculate post-retirement liabilities increased in 2013 resulting in a reduced obligation liability. In both 2012 and 2013, plan asset values increased due to positive returns in the stock markets. Profit was higher in 2013 at $133.4 million, as compared to $64.7 million in 2012. The significant increase was due to increased operating profits, $32.3 million in insurance proceeds and extinguishment of the interest expense on the Holdings Notes. Westshore has used the insurance proceeds to cover its out of pocket expenses to repair and rebuild the damaged trestle at Berth 1 which were incurred in Q4 2012 and the first half of 2013 with the remaining amounts to be applied to the capital upgrade projects that will take place over the next 4-5 years (refer to “Liquidity and Capital Resources” below). Cash Flows Cash flows from operations are available to the Corporation to fund capital and other expenditures and pay dividends to shareholders. Cash flow from operations increased from $100.1 million in 2012 to $176.1 million in 2013. Cash flows before changes in working capital and income tax payments increased from $115.8 million in 2012 to $202.4 million in 2013 due to the insurance proceeds received, past service costs that were immediately expensed but were funded with a letter of credit in the current year, and increased profits resulting from both higher average loading rates and higher volumes shipped. Working capital changes in 2013 were lower by $26.6 million than in 2012 as accounts receivable balances and accounts payable and accrued liabilities balances returned to a more normal level at the end of 2013. At the end of 2012, receivables and payables were low and high respectively due to the timely collection of receivables and payables being higher due to the timing of payments. Cash used for financing activities for 2013 was $124.6 million as opposed to cash used of $59.9 million for 2012. The Corporation drew $30 million on the revolving credit facility in 2012, but repaid it in 2013. Dividend and interest payments for 2012 were $3.8 million lower than dividend only payments in 2013. 12 Westshore Terminals Investment Corporation Management’s Discussion & Analysis of Financial Condition and Results of Operations Cash used in investing activities decreased from $61.9 million in 2012 to $33.9 million in the 2013. The higher capital expenditures in the prior year were incurred as part of the double dumper and chute upgrade projects, whereas capital expenditures in the current year consisted of the replacement Berth 1 trestle and the new dust suppression system. Liquidity and Capital Resources It is not anticipated that the Corporation will require significant capital resources to maintain its investment in Westshore on an ongoing basis or to meet its working capital requirements. Capital expenditures required to maintain the Terminal’s existing throughput capacity and refurbish equipment in the ordinary course of business have increased over the past several years. As explained under “Facilities”, rather than continuing to incur increasing costs of this nature on an ongoing basis, the Corporation has determined to undertake replacement of the three older stacker- reclaimers and shiploader. These projects will be financed through a combination of retention of cash flow and borrowings which are expected to be in the $100 million range. Meeting annual capital requirements, along with managing variations in working capital, are well within Westshore’s financial capacity based solely on revenues less expenses, without any need for financing except for material capital improvements. As a result, the Corporation does not anticipate any liquidity concerns with the ongoing operations of Westshore. Westshore has a $15 million operating facility with a Canadian chartered bank which, if required, can be utilized to fund working capital requirements. This facility was not used during the fourth quarter and remained undrawn at December 31, 2013, although Westshore has an outstanding letter of credit for $11.8 million related to pension funding. The term of the operating facility expires on August 29, 2014. Westshore has a $50 million revolving credit facility to be utilized for capital expenditures and investments, which was not drawn at December 31, 2013. The credit facility has a term ending August 31, 2016, and is secured by a pledge of all of the assets of the Corporation. The revolving credit facility bears interest at the 1 month BA rate plus a margin and no repayments are required until maturity. As noted above, additional borrowing will be required to finance the further capital upgrade projects announced in 2013. Given the low debt level within the Corporation, it anticipates no difficulty in securing such borrowing. Westshore has post-retirement benefit obligations under its pension plans and other post-retirement benefit plans which it is required to fund each year. Westshore’s funding requirements were $5.3 million in 2013 (2012 – $7.2 million), which comprised $4.0 million (2012 – $5.8 million) for contributions to the pension plans and $1.3 million (2012 - $1.4 million) for payments for other post-retirement benefits. Westshore anticipates that its funding requirements in 2014 will be higher than in 2013 but will partially be funded by an increase to the letter of credit rather than with cash. Westshore does not anticipate any problems satisfying its 2014 funding obligations out of current cash flows. The balance sheet reflects a $62.2 million obligation for post-retirement benefits and other post retirement benefit plans compared to $59.8 million for the prior year. This balance would be expected to decline in the future if interest rates increase. Future minimum operating lease payments for the years ending December 31 (assuming minimum annual tonnes) are as follows: 13 Westshore Terminals Investment Corporation Management’s Discussion & Analysis of Financial Condition and Results of Operations 2014 2015 2016 2017 2018 Thereafter Terminal Lease Other $ $ 11,701 11,701 11,701 11,701 11,701 93,607 $ 290 - - - - - Total 11,991 11,701 11,701 11,701 11,701 93,607 Westshore has a commitment of $4.1 million with respect to equipment purchases that are to be delivered and paid for in the next 12 months. The Corporation does not have any material capital lease obligations, or other long-term obligations. Distributions Distributions by the Corporation over the last two years were as follows: (In thousands of Canadian dollars except per share and Note Receipt amounts) Total Dividends on Common Shares Total Dividends per Common Share Total Interest on Holdings Notes Total Interest per Note Receipt 2013 $ 98,010 1.32 - - 2012 $ 71,651 0.965 19,491 0.263 In view of the decision to reinvest approximately $275 million over the next four to five years in projects consisting principally of replacement of the three older stacker-reclaimers, new shiploader and office redevelopment at the Terminal site, the directors determined to initiate a capital projects fund to enable the Corporation to lessen the amount of additional bank debt financing that would otherwise be required to pay for the projects. The Corporation has been holding back some funds, which commenced with the Q2 2013 dividend, by setting a dividend rate of $0.33 per share per quarter. This was the level of distribution paid during all of 2013. Such dividend level is, subject to change based on other opportunities that may come before Westshore, and based on the Terminal handling 30 million tonnes or more (under its existing customer contracts) for the next several years. As part of this fund, the Corporation also expects to use insurance recoveries received in respect of lost income from the Berth 1 trestle incident. Westshore will have completed its collection of insurance proceeds from its insurers, which totaled $38.5 million, by April 2014. Recovery efforts on behalf of Westshore and its insurers against the Cape Apricot and its insurers continue. This dividend policy will be subject to regular review, and actual operating performance at the Terminal and the ultimate costs for these projects may impact future dividends positively or negatively. 14 Westshore Terminals Investment Corporation Management’s Discussion & Analysis of Financial Condition and Results of Operations Outlook The cash inflows of the Corporation are entirely dependent on Westshore’s operating results. They are affected by the volume and mix of coal shipped through the Terminal, the rates charged to customers for that coal, and Westshore’s operating and administrative costs. Contracts entered into in 2011 and 2012 provide significant customer volume commitments over the next several years, much of which are at fixed rates. Shipments under those contracts are expected to provide a stable base for revenues over the next several years, with the possibility of increased revenues from higher than committed shipments and increased rates under contracts that provide some element of price participation. The variance in revenues from 2013 will ultimately be impacted by numerous factors, including total volumes shipped through the Terminal, the distribution of throughput by customer, prices realized by certain shippers and foreign exchange rates. Based on the information currently available to it, Westshore is anticipating volume levels in 2014 to be higher than in 2013 and at slightly higher rates than in 2013. If Westshore’s profit for the calendar year exceeds $42 million, incentive fees will be payable by Westshore to the Manager under the Management Agreement, to a maximum of $5 million. Related Party Transactions The Manager provides management services to Westshore pursuant to a management agreement dated December 31, 2010 (the “Management Agreement”). Westshore pays an annual management fee to the Manager and an incentive fee based on a percentage of profit above $42 million, starting at 1.5% and rising to 6%, subject to an annual cap on the incentive fee of $5 million. The annual base management fee is paid in monthly installments, and $979,000 was paid in this regard by Westshore for the twelve month period ended December 31, 2013. The incentive fee for the twelve month period ended December, 31, 2013 was $4,161,000 and was paid subsequent to year-end. The Governance Agreement between the Corporation and the Manager governs the composition of the board of directors of the General Partner. Since January 1, 2011, the board of directors of the General Partner consists of seven directors, three of whom are nominated by the Manager. The Manager also provides administration services to the Corporation pursuant to an administration agreement dated December 31, 2010. The Corporation pays an annual administration fee in monthly installments. $335,000 was paid by the Corporation to the Manager for the twelve month period ended December 31, 2013. Changes in Accounting Policies The Corporation’s accounting policies are found in note 3 of the Corporation’s financial statements beginning on page 24. Amendments to IAS 19 Employee Benefits The Corporation adopted IAS 19 Employee Benefits (2011) with a date of initial application of January 1, 2013 and changed its basis for determining the income or expense related to defined benefit plans as required. As a result of the change, the Corporation now determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability (asset) at the beginning of the annual period. It 15 Westshore Terminals Investment Corporation Management’s Discussion & Analysis of Financial Condition and Results of Operations takes into account any changes in the net defined liability (asset) during the period as a result of contributions and benefit payments. The net interest on the net defined benefit liability (asset) comprises: • • Interest cost on the defined benefit obligation; and Interest income on plan assets. Previously, the Corporation determined interest income on plan assets based on their long-term rate of expected return. This net interest is disclosed as a component of financing costs. In addition, the Corporation is now required to recognize past service costs in full immediately in profit or loss. The change in accounting policy has been applied retrospectively. The following table summarizes the financial effects on the statement of comprehensive income on implementation of the new accounting policy as compared to amounts previously presented: Decrease (increase in): Operating expenses Finance costs, net Income taxes Profit for the year Other comprehensive income Total comprehensive income for the year Twelve Months Ended December 31, 2012 $ $ 963 (2,672) 428 1,281 (1,281) - The change in accounting policy had no impact on net assets as at December 31, 2012 and had an immaterial impact on earnings per share for the comparative period. Critical Accounting Estimates The preparation of financial statements and related disclosures in accordance with IFRS requires the Corporation to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and contingencies. These estimates are based on historical experience and on assumptions that are considered at the time to be reasonable under the circumstances. Under different assumptions or conditions, the actual results may differ, potentially materially, from those previously estimated. The following is a discussion of the accounting estimates that are significant in determining the Corporation’s financial results. Plant and equipment: Depreciation Plant and equipment are stated at cost less accumulated depreciation. Cost at the date of transition to IFRS was determined by reference to Canadian GAAP. Depreciation is calculated using the straight line method over the estimated useful production life of the assets. The estimated useful lives of plant and equipment range from 3 to 35 years and are reviewed annually. A change in the estimated useful lives of plant and equipment could result in either a higher or lower depreciation charge to profit for the period. 16 Westshore Terminals Investment Corporation Management’s Discussion & Analysis of Financial Condition and Results of Operations Asset Retirement Obligations Westshore is required to recognize the fair value of an estimated asset retirement obligation when a legal obligation is present and a reasonable estimate of fair value can be made. At the expiry of the Terminal’s lease, the VFPA has the option to acquire the assets of the Terminal at fair value or require Westshore to return the site to its original condition. Westshore believes that the probability that the VFPA will elect to enforce site restoration is negligible and any liability related to an asset retirement obligation would not be material, although any change in the estimate of site restoration costs or the probability of incurring those costs could have a material impact on the asset retirement obligation. Goodwill Goodwill is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired, by comparing the fair value of Westshore to its carrying value, including goodwill. If the fair value of Westshore is less than its carrying value, a goodwill impairment loss is recognized as the excess of the carrying value of the goodwill over the fair value of the goodwill. The determination of fair value requires management to make assumptions and estimates about future coal loading rates, customer shipments, operating costs, foreign exchange rates and discount rates. Changes in any of these assumptions, such as lower coal loading rates, a decline in customer shipments, an increase in operating costs or an increase in discount rates could result in an impairment of all or a portion of the goodwill carrying value in future periods. Employee Future Benefits Westshore has post-retirement benefit obligations under its pension plans and other post-retirement benefit plans, the costs of which are based on estimates. Actuarial calculations of benefit costs and obligations depend on Westshore’s assumptions about future events. Major estimates and assumptions relate to expected plan investment performance, salary escalation, retirement ages of employees and expected health care costs, as well as discount rates, withdrawal rates and mortality rates. Deferred Income Taxes Deferred income tax assets and liabilities have been recognized for temporary differences between the tax basis of an asset or liability and its carrying amount on the balance sheet. The deferred income tax balances can be affected by a change in the estimate of when temporary differences reverse, the likelihood of realization of deferred tax assets, and the classification of assets for tax purposes. Future Accounting Standards: IFRS 9 – Financial Instruments IFRS 9, as issued, reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities, as defined in IAS 39. The standard was initially effective for annual periods beginning on or after January 1, 2013, but Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, changed the mandatory effective date to undetermined. The company will quantify the effect in conjunction with the other phases, when the final standard, including all phases, is issued. 17 Westshore Terminals Investment Corporation Management’s Discussion & Analysis of Financial Condition and Results of Operations Internal Controls Over Financial Reporting The Corporation maintains a system of internal controls over financial reporting, as defined by National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings (“National Instrument 52-109”), in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial information for external purposes in accordance with IFRS. The Chief Executive Officer and Chief Financial Officer of the Corporation have caused to be evaluated under their supervision, the effectiveness of the Corporation’s internal controls over financial reporting as of December 31, 2013. Based on that assessment, it was determined that the internal controls over financial reporting were appropriately designed and were operating effectively. No material changes were identified in the Corporation’s internal controls over financial reporting during the year ended December 31, 2013 that have materially affected the Corporation’s internal controls over financial reporting, or are reasonably likely to materially affect the Corporation’s internal controls over financial reporting. It should be noted that a control system, including the Corporation’s internal controls and procedures, no matter how well conceived, can provide only reasonable, but not absolute, assurance that the objectives of the control system will be met and it should not be expected that the disclosure and internal controls and procedures will prevent all errors or fraud. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Disclosure Controls And Procedures “Disclosure controls and procedures” are defined as follows in National Instrument 52-109: “Disclosure controls and procedures” means controls and other procedures of an issuer that are designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under provincial and territorial securities legislation is recorded, processed, summarized and reported within the time periods specified in the provincial and territorial securities legislation and include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in its annual filings, interim filings or other reports filed or submitted under provincial and territorial securities legislation is accumulated and communicated to the issuer’s management, including its chief executive officer and chief financial officer (or persons who perform similar functions to a chief executive officer or a chief financial officer), as appropriate to allow timely decisions regarding required disclosure.” As required by National Instrument 52-109, the Chief Executive Officer and the Chief Financial Officer of the Corporation, in conjunction with management of the General Partner, have evaluated the effectiveness of the design and tested the operation of the disclosure controls and procedures of Westshore, the General Partner and the Corporation as of December 31, 2013 and have concluded that such disclosure controls and procedures provide reasonable assurance that information required to be disclosed in the annual filings, interim filings or other reports 18 Westshore Terminals Investment Corporation Management’s Discussion & Analysis of Financial Condition and Results of Operations filed or submitted under provincial and territorial securities legislation is recorded, processed, summarized and reported within the time periods specified in such legislation. Additional information relating to the Corporation and Westshore, including the Corporation’s annual information form, is available at www.sedar.com Management’s Report The consolidated financial statements and other information in this annual report have been prepared by and are the responsibility of the management of the Corporation. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and reflect where necessary management’s best estimates and judgments. Management is also responsible for maintaining systems of internal and administrative controls to provide reasonable assurance that the Corporation’s assets are safeguarded, that transactions are properly executed in accordance with appropriate authorization and that the accounting systems provide timely, accurate and reliable financial information. The Directors are responsible for assuring that management fulfills its responsibility for financial reporting and internal control. The Directors perform this responsibility at meetings where significant accounting, reporting and internal control matters are discussed and the consolidated financial statements and annual report are reviewed and approved. The consolidated financial statements have been audited on behalf of the shareholders by KPMG LLP, Chartered Accountants, in accordance with International Financial Reporting Standards. The Auditors’ Report outlines the scope of their examination and their independent professional opinion on the fairness of these financial statements. (Signed) “William W. Stinson” William W. Stinson Director (Signed) “M. Dallas H. Ross” M. Dallas H. Ross Director ____________________________________________________________________________________________________ 19 KPMG LLP Chartered Accountants PO Box 10426 777 Dunsmuir Street Vancouver BC V7Y 1K3 Canada Telephone (604) 691-3000 (604) 691-3031 Fax www.kpmg.ca Internet INDEPENDENT AUDITORS’ REPORT To the Shareholders of Westshore Terminals Investment Corporation We have audited the accompanying consolidated financial statements of Westshore Terminals Investment Corporation, which comprise the consolidated statements of financial position as at December 31, 2013 and 2012, the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Westshore Terminals Investment Corporation as at December 31, 2013 and 2012, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards. KPMG LLP (signed) Chartered Accountants March 18, 2014 Vancouver, Canada KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP. WESTSHORE TERMINALS INVESTMENT CORPORATION Consolidated Statements of Financial Position (Expressed in thousands of Canadian dollars) Assets Current assets: Cash and cash equivalents Accounts receivable Inventories Prepaid expenses Property, plant, and equipment: At cost Accumulated depreciation Goodwill Deferred income taxes Other assets Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities Income tax payable Dividends payable to shareholders Deferred income taxes Employee future benefits Revolving credit facility Shareholders' equity (deficit): Share capital Deficit Subsequent events (note 4) Commitments (note 15) Note December 31, 2013 December 31, 2012 $ $ $ $ 61,408 18,218 10,439 1,028 91,093 629,499 (453,161) 176,338 365,541 - 22 632,994 $ $ 37,922 17,887 24,503 80,312 15,210 62,205 - 157,727 1,706,265 (1,230,998) 475,267 43,873 11,247 9,033 872 65,025 593,168 (441,760) 151,408 365,541 6,423 - 588,397 38,817 5,353 20,419 64,589 - 59,780 30,000 154,369 1,706,265 (1,272,237) 434,028 $ 632,994 $ 588,397 5 8 13 9 8 11 12 9 See accompanying notes to consolidated financial statements. Approved on behalf of the Board: (Signed) “William W. Stinson” William W. Stinson Director (Signed) “M. Dallas H. Ross” M. Dallas H. Ross Director 20 WESTSHORE TERMINALS INVESTMENT CORPORATION Consolidated Statements of Comprehensive Income (Expressed in thousands of Canadian dollars) Years ended December 31, 2013 and 2012 Note 2013 2012 (restated - note 3) Revenue: Coal loading Other Expenses: Operating Administrative Other: Foreign exchange gain (loss) Insurance proceeds Gain on disposal (loss on write-down) of plant and equipment Profit from operating activities Net finance costs Profit before income tax Income tax expense Profit for the year Other comprehensive income (loss): Defined benefit plan actuarial gains (losses) Income tax recovery (expense) on other comprehensive income (loss) Other comprehensive income (loss) for the year, net of income tax Total comprehensive income for the year Profit per share: Basic and diluted earnings per share Weighted average number of shares outstanding 4 6 7 11 10 21 $ $ $ 286,703 9,022 295,725 132,159 13,229 145,388 807 32,325 12 183,481 3,569 179,912 46,486 133,426 7,869 (2,046) 5,823 139,249 1.80 74,250,016 $ $ $ 232,442 8,253 240,695 120,638 9,951 130,589 (368) - (1,766) 107,972 21,967 86,005 21,348 64,657 (3,910) 978 (2,932) 61,725 0.87 74,250,016 WESTSHORE TERMINALS INVESTMENT CORPORATION Consolidated Statements of Changes in Equity (Expressed in thousands of Canadian dollars) Years ended December 31, 2013 and 2012 Share capital Deficit (restated-note 3) Total (restated-note 3) Balance at January 1, 2012 $ 1,335,015 $ (1,262,311) $ 72,704 Profit for the year Other comprehensive income (loss): Defined benefit plan actuarial losses, net of tax Total comprehensive income for the year - - - 64,657 64,657 (2,932) (2,932) 61,725 61,725 Contributions by and distributions to shareholders of the Corporation: Issuance of common shares on exchange of note receipts Dividends declared to shareholders 371,250 - - (71,651) 371,250 (71,651) Balance at December 31, 2012 $ 1,706,265 $ (1,272,237) $ 434,028 Balance as at January 1, 2013 $ 1,706,265 $ (1,272,237) $ 434,028 Share capital Deficit Total Profit for the year Other comprehensive income (loss): Defined benefit plan actuarial gains, net of tax Total comprehensive income for the year Distributions to shareholders of the Corporation: Dividends declared to shareholders - - - - 133,426 133,426 5,823 5,823 139,249 139,249 (98,010) (98,010) Balance at December 31, 2013 $ 1,706,265 $ (1,230,998) $ 475,267 See accompanying notes to consolidated financial statements. 22 WESTSHORE TERMINALS INVESTMENT CORPORATION Consolidated Statement of Cash Flows (Expressed in thousands of Canadian dollars) 2013 2012 (restated-note 3) $ 133,426 $ 64,657 11,528 7,359 3,569 46,486 (12) 202,356 (6,971) (1,406) (156) (3,406) (11,939) (14,365) 176,052 (656) - (93,926) 40,000 (70,000) (124,582) (33,935) (33,935) 17,535 43,873 61,408 $ 9,870 (3,767) 21,888 21,348 1,766 115,762 10,533 (725) (138) 5,095 14,765 (30,460) 100,067 202 (29,236) (60,885) 30,000 - (59,919) (61,863) (61,863) (21,714) 65,587 43,873 Years ended December 31, 2013 and 2012 Cash provided by (used in): Operations: Profit for the year Adjustments for: Depreciation Employee future benefits liability Net finance costs Income tax expense Loss (gain) on disposal of fixed assets Changes in non-cash operating working capital and other: Accounts receivable Inventories Prepaid expenses Accounts payable and accrued liabilities Income taxes paid Financing: Interest received (paid) Interest paid to noteholders Dividends paid to shareholders Drawings on revolving credit facility Repayments on revolving credit facility Investments: Property, plant and equipment, net Increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of the year Cash and cash equivalents, end of the year $ See accompanying notes to consolidated financial statements. 23 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 1. Reporting entity: The Corporation was incorporated under the British Columbia Business Corporation Act on September 28, 2010 and is domiciled in Canada. The registered and head office of the Corporation is located at Suite 1800, 1067 West Cordova Street, Vancouver, British Columbia, V6C 1C7. The Corporation owns all of the limited partnership units of Westshore Terminals Limited Partnership (“Westshore”), a partnership established under the laws of British Columbia. Prior to 2011 these units were owned by Westshore Terminals Income Fund. The Corporation derives its cash inflows from its investment in Westshore by way of distributions on Westshore’s limited partnership units. Westshore operates a coal storage and loading terminal at Roberts Bank, British Columbia (the “Terminal”). Substantially all of Westshore’s operating revenues are derived from rates charged for loading coal onto seagoing vessels. The consolidated financial statements of the Corporation as at and for the year ended December 31, 2013 comprise the Corporation and its subsidiaries (together referred to as the “Corporation”). 2. Basis of preparation: (a) Statement of compliance: The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The consolidated financial statements were authorized for issue by the Board of Directors on March 18, 2014. (b) Basis of measurement: These consolidated financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position: • financial instruments classified as fair value through profit or loss are measured at fair value; • derivative financial instruments are measured at fair value; and • the defined benefit obligation is recognized as the present value of the defined benefit obligation, measured at fair value, less plan assets at fair value. (c) Functional and presentation currency: These consolidated financial statements are presented in Canadian dollars, which is the Corporation and its subsidiaries’ functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand. (d) Use of estimates and judgments: The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income, and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. 24 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 2. Basis of preparation (continued): (d) Use of estimates and judgments (continued): Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment relate to the determination of net recoverable value of assets, useful lives of plant and equipment, asset retirement obligations, measurement of defined benefit obligations, derivative instruments and income tax amounts. (e) Comparative figures: Certain of the figures presented for comparative purposes have been reclassified to conform with the financial statement presentation adopted for the current period. 3. Significant accounting policies: The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, unless otherwise indicated. (a) Basis of consolidation: (i) Subsidiaries: Subsidiaries are entities controlled by the Corporation. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date the control ceases. (ii) Transactions eliminated on consolidation: Intra-corporation balances and transactions, and any unrealized income and expenses arising from intra- corporation transactions, are eliminated in preparing the consolidated financial statements. (b) Foreign currency: The functional and reporting currency of the Corporation and its subsidiaries is the Canadian dollar. Transactions which are denominated in other currencies are translated into their Canadian dollar equivalents at exchange rates prevailing at the transaction date. The carrying values of monetary assets and liabilities denominated in foreign currencies are adjusted at each reporting date to reflect exchange rates prevailing at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in the foreign currency translated at the exchange rate at the end of the period. Foreign exchange gains and losses are recognized under ‘Foreign exchange gain (loss)’ in profit or loss. (c) Financial instruments: Financial assets and financial liabilities are recognized when the Corporation becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognized when it is extinguished, discharged, cancelled or expires. 25 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 3. Significant accounting policies (continued): (c) Financial instruments (continued): Financial assets and financial liabilities are measured initially at fair value plus transactions cost, except for financial assets and financial liabilities carried at fair value through profit or loss, which are measured initially at fair value. Cash and cash equivalents The Corporation considers deposits in banks, certificates of deposit and short-term investments with original maturities of three months or less when acquired as cash and cash equivalents. Cash and cash equivalents are classified as loans and receivables. Receivables Receivables are classified as loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition these are measured at amortized cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. Individual receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Financial liabilities Financial liabilities of the Corporation are classified as other financial liabilities. Other financial liabilities are non-derivative financial liabilities with fixed or determinable payments that are not quoted in an active market. After initial recognition these liabilities are measured at amortized cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. Other financial liabilities comprise accounts payable and accrued liabilities, dividends payable and the revolving credit facility. Derivative financial instruments Changes in fair value of derivative financial instruments not designated in a hedge relationship are recognized immediately in profit or loss. (d) Property, plant and equipment: (i) Recognition and measurement: Items of property, plant, and equipment are measured at historical cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self- constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and borrowing costs on qualifying assets for which the commencement date for capitalization is on or after January 1, 2010. 26 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 3. Significant accounting policies (continued): (d) Property, plant and equipment (continued): (i) Recognition and measurement (continued): Borrowing costs attributable to the construction of a qualifying asset are included in the cost of the asset. Other borrowing costs are recognized as an expense. When parts of an item of property, plant, and equipment have different useful lives, they are accounted for as separate items of property, plant, and equipment. The gain or loss on disposal of an item of property, plant, and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant, and equipment, and is recognized net within other income/expenses in profit or loss. (ii) Depreciation: Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed, and if a component has a useful life that is different from the remainder of the asset, then that component is depreciated separately. Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant, and equipment. The estimated useful live for the current and comparative periods are as follows: Asset Automobiles Conveyor belts Computer software Mobile equipment Land improvements Buildings Fixed machinery Term 3 years 5 years 3 years to 5 years 5 years to 25 years 15 years to 30 years 8 years to 35 years 8 years to 35 years Depreciation methods, useful lives, and residual values are reviewed at each financial year end and adjusted if appropriate. 27 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 3. Significant accounting policies (continued): (e) Impairment: Non-Financial assets The carrying values of the Corporation’s non-financial assets are reviewed at each reporting date to assess whether there is any indication of impairment. If any such indication is present, then the recoverable amount of the assets is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of impairment testing, assets are grouped at the lowest levels that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit and loss. Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment charge is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Corporation on terms that the Corporation would not consider otherwise, or indications that a debtor or issuer will enter bankruptcy. The Corporation considers evidence of impairment for financial assets, and in particular receivables, at both a specific asset and collective level. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows, discounted at the effective interest rate. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss is recognized. For financial assets measured at amortized cost, this reversal is recognized in profit or loss. 28 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 3. Significant accounting policies (continued): (f) Goodwill: Goodwill is recognized on a business combination at the acquisition date and is initially measured at the fair value of the consideration transferred less the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed. Goodwill is subsequently measured at cost less accumulated impairment losses. Goodwill is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Any excess of the carrying value over fair value is charged to profit or loss in the period in which the impairment is determined. (g) Inventories: Inventories of spare parts and supplies are measured at the lower of cost and net realizable value. Cost is determined using the weighted average cost method and includes the invoiced cost and other directly attributable costs of acquiring the inventory. (h) Employee benefits: Defined benefit plans A defined benefit plan is a post-retirement benefit plan other than a defined contribution plan. The Corporation’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value and the fair value of plan assets is deducted. The discount rate used to determine the present value of the obligation is the yield at the reporting date on high quality corporate bonds that have maturity dates approximating the term of the Corporation’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Corporation, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in the future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Corporation. An economic benefit is available to the Corporation if it is realizable during the life of the plan, or on settlement of the plan liabilities. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized in profit or loss on the date of improvement. The Corporation recognizes all actuarial gains and losses arising from defined benefit plans immediately in other comprehensive income and expenses related to defined benefit plans in profit or loss. 29 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 3. Significant accounting policies (continued): (h) Employee benefits (continued): Other long-term employee benefits The Corporation’s net obligation in respect of long-term employee benefits other than pension plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on high quality corporate bonds that have maturity dates approximating the terms of the Corporation’s obligations. The calculation is performed using the projected unit credit method. Any actuarial gains and losses are recognized immediately in other comprehensive income in the period in which they arise. Amendments to IAS 19 Employee Benefits The Corporation adopted IAS 19 Employee Benefits (2011) with a date of initial application of January 1, 2013 and changed its basis for determining the income or expense related to defined benefit plans as required. As a result of the change, the Corporation now determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability (asset) at the beginning of the annual period. It takes into account any changes in the net defined liability (asset) during the period as a result of contributions and benefit payments. The net interest on the net defined benefit liability (asset) comprises: • • Interest cost on the defined benefit obligation; and Interest income on plan assets. Previously, the Corporation determined interest income on plan assets based on their long-term rate of expected return. This net interest is disclosed as a component of financing costs. In addition, the Corporation is now required to recognize past service costs in full immediately in profit or loss. The change in accounting policy has been applied retrospectively. 30 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 3. Significant accounting policies (continued): (h) Employee benefits (continued): The following table summarizes the financial effects on the statement of comprehensive income on implementation of the new accounting policy as compared to amounts previously presented: Decrease (increase in): Operating expenses Finance costs, net Income taxes Profit for the year Other comprehensive income Total comprehensive income for the year Twelve Months Ended December 31, 2012 $ $ 963 (2,672) 428 1,281 (1,281) - The change in accounting policy had no impact on net assets as at December 31, 2012 and had an immaterial impact on earnings per share for the comparative period. (i) Revenue: Coal loading revenue is recognized when a customer’s coal is completely loaded onto a ship and ready for export from the terminal site. Coal loading revenue is recorded based on contract specific loading rates. Other revenue includes wharfage fees which are recorded based upon the period of time a ship is at the terminal. (j) Provisions: A provision is recognized if, as a result of a past event, the Corporation has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Decommissioning liabilities The Corporation’s terminal site is leased from the Vancouver Fraser Port Authority (the “VFPA”). A new lease agreement became effective as of January 1, 2012. The current lease runs until December 31, 2026, and may be extended at the Partnership's option for further periods up to 25 years. At the expiry of the lease term, assuming the Corporation has not been successful in further extending the lease, the VFPA has the option to acquire the assets of the terminal at fair value or require the Corporation to return the site to its original condition. The Corporation believes that the probability that the VFPA will elect to enforce site restoration is remote. 31 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 3. Significant accounting policies (continued): (k) Income tax: Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent they relate to items recognized directly in equity or other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary difference, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. (l) New standards and interpretations not yet adopted: A number of new standards, and amendments to standards and interpretations, are not yet effective for the year ended December 31, 2013, and have not been applied in preparing these consolidated financial statements. None of these are expected to have a significant effect on the consolidated financial statements of the Corporation. IFRS 9 – Financial Instruments IFRS 9, as issued, reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities, as defined in IAS 39. The standard was initially effective for annual periods beginning on or after January 1, 2013, but Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, change the mandatory effective date to undetermined. The company will quantify the effect in conjunction with the other phases, when the final standard, including all phases, is issued. 4. Insurance proceeds: On December 7, 2012 the MV Cape Apricot, a large cape size coal vessel, ran through the trestle at Berth 1 rendering it unusable. Repairs to the trestle were completed to a point sufficient to bring Berth 1 back into operations in early February 2013, with final repairs to the road-way on the trestle completed in April 2013. $32.3 million has been recovered to December 31, 2013 from the Corporation’s insurers. 32 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 4. Insurance proceeds (continued): Subsequent to year end, an additional $6.2 million has been agreed to with the Corporation’s insurers and is expected to be received by April 2014. Efforts on behalf of the Corporation and its insurers to recover losses from the ship’s owners and insurers are ongoing. 5. Plant and equipment: Cost: Balance at January 1, 2012 Additions Capitalized interest(1) Transfers Disposals Balance at December 31, 2012 Additions Transfers Disposals Balance at December 31, 2013 Accumulated depreciation: Balance at January 1, 2012 Depreciation for the year Disposals Balance at December 31, 2012 Depreciation for the year Disposals Balance at December 31, 2013 Carrying amounts: At December 31, 2012 At December 31, 2013 Buildings and land improvements Machinery and equipment Construction in progress $ $ $ $ $ $ $ $ $ $ 34,465 554 - - - 35,019 5,786 - - 40,805 29,975 943 - 30,918 1,026 - 31,944 4,101 8,861 490,849 60,856 473 7,014 (6,754) 552,438 - 29,625 (134) 581,930 406,883 8,927 (4,968) 410,842 10,502 (127) 421,217 141,596 160,713 $ $ 12,725 - - (7,014) - 5,711 30,678 (29,625) - 6,764 - - - - - - - 5,711 6,764 $ $ $ $ $ $ $ $ Total 538,039 61,410 473 - (6,754) 593,168 36,464 - (134) 629,499 436,858 9,870 (4,968) 441,760 11,528 (127) 453,161 151,408 176,338 1 The capitalization rate for 2012 was 3.0% and depreciation was recorded in operating expenses on the consolidated statements of comprehensive income. 33 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 6. Finance costs: Interest expense (income), net Employee benefit interest expense, net Interest accrued to noteholders Unrealized gain on interest rate hedging contracts 2013 2012 (restated - note 3) $ 656 2,935 - (22) $ (196) 2,672 19,491 - Net finance costs $ 3,569 $ 21,967 During the year ended December 31, 2013, the Corporation has capitalized $ nil (2012 – $ 473,000) of interest expense to property, plant and equipment. 7. Income tax expense: Tax expense recognized in profit Current income tax expense Deferred tax expense Tax expense (recovery) recognized directly in equity Defined benefit plans Reconciliation of effective tax rate: Profit before income tax Statutory rate Expected income tax expense Permanent differences Rate changes Other Actual income tax expense 34 2013 2012 (restated - note 3) $ 26,899 19,587 46,486 $ 20,407 941 21,348 (2,046) 978 2013 2012 (restated - note 3) $ 179,912 25.75% 46,327 50 467 (358) 46,486 $ $ 86,006 25.00% 21,501 25 - (178) $ 21,348 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 8. Deferred tax assets and liabilities: Deferred tax assets: Non-pension defined benefits liability Pension defined benefits liability Financing fees Non-capital loss carryfowards Total assets Deferred tax liabilities: Property, plant and equipment Hedging contracts Total liabilities Net deferred income tax assets (liabilities) 9. Share capital: Authorized: Unlimited number of common shares, no par value. Issued: December 31, 2013 December 31, 2012 $ $ 15,151 1,023 2 - 16,176 (31,380) (6) (31,386) (15,210) $ 12,584 2,361 2 1,600 16,547 (10,124) - (10,124) $ 6,423 Common shares 2013 2012 74,250,016 issued and outstanding common shares $ 1,706,265 $ 1,706,265 The holders of the common shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Corporation. The Corporation has declared dividends of $98,010,000 ($1.32 per share) in equal quarterly amounts in 2013 (2012 - $71,651,000 or $0.965 per share). 35 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 10. Profit per share: Earnings per share: The calculation of basic profit per share for the year ended December 31, 2013 was based on profit attributable to shareholders and a weighted average number of common shares outstanding. 2013 2012 (restated - note 3) Profit for the year $ 133,426 $ 64,657 Weighted average number of common shares outstanding 74,250,016 74,250,016 Basic and diluted earnings per share 1.80 0.87 11. Employee benefits: Present value of unfunded obligations Present value of funded obligations Total present value of obligations Fair value of plan assets December 31, 2013 December 31, 2012 $ 58,272 98,044 156,316 (94,111) $ 50,336 91,866 142,202 (82,422) Recognized liability for defined benefit obligations $ 62,205 $ 59,780 The Corporation makes contributions to two non-contributory defined benefit plans that provide pension benefits for employees upon retirement. The Corporation also provides two non-contributory, other post retirement benefit plans that provide retiring allowances and other medical benefits after retirement. 36 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 11. Employee benefits (continued): Plan Assets: Plan assets are comprised of the following investments: Equity securities Fixed income securities Cash and cash equivalents 2013 67,011 24,806 2,294 94,111 $ $ 2012 56,292 23,505 2,625 82,422 $ $ 2013 2012 Actual return on plan assets $ 13,134 $ 7,827 Asset and Liability Movements: Movement in the present value of the defined benefit obligations Pension obligations 2012 2013 Other post retirement benefits 2013 2012 Defined benefit obligation at January 1 Benefits paid by the plan Current and past service costs and interest (see below) Actuarial losses in other comprehensive income (see below) $ 91,866 (5,254) $ 85,471 (4,414) $ 50,336 (1,278) $ 44,952 (1,447) 11,383 49 5,798 5,011 7,470 3,621 1,744 3,210 Defined benefit obligations at December 31 $ 98,044 $ 91,866 $ 58,272 $ 50,336 The discount rate used to calculate the benefit obligations increased from 4.25% as at December 31, 2012 to 4.50% as at December 31, 2013. 37 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 11. Employee benefits (continued): Asset and Liability Movements (continued): Movement in the fair value of the defined benefit plan assets Pension assets 2013 2012 Other post retirement benefits 2013 2012 Fair value of plan assets at January 1 Contributions paid into the plan Benefits paid by the plan Expected return on plan assets (see below) Non-investment expense (see below) Actuarial gains in other $ 82,422 4,056 (5,254) 3,472 (247) $ 73,458 5,772 (4,414) 3,516 (221) $ - 1,278 (1,278) - - comprehensive income (see below) 9,662 4,311 Fair value of plan assets at December 31 $ 94,111 $ 82,422 $ - - $ $ - 1,447 (1,447) - - - - Profit and Loss: Profit and loss includes the following amounts in respect of post-retirement obligations: Pension obligations expense recognized in profit and loss Service costs: Current service costs Past service costs Non-investment expenses Net interest costs Interest cost Expected return on plan assets 2013 2012 (restated - note 3) $ 1,691 5,615 247 7,553 4,077 (3,472) 605 $ 1,399 378 221 1,998 4,021 (3,516) 505 $ 8,158 $ 2,503 38 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 11. Employee benefits (continued): Profit and Loss (continued): Other post retirement benefits expense recognized in profit and loss Current service costs Past service costs Interest costs 2013 2012 (restated - note 3) $ 1,661 3,479 2,330 $ 1,400 54 2,167 $ 7,470 $ 3,621 The current and past service costs are recognized in operating expenses and net interest costs are included in net finance costs. Actuarial gains (losses) recognized in other comprehensive income 2013 2012 Cumulative amount at beginning of year Recognized during the year Cumulative amount at December 31 Funding and Assumptions: $ (19,399) $ 7,869 (15,489) (3,910) $ (11,530) $ (19,399) The pension plans are entirely funded by the Corporation. The Corporation’s contributions to the pension plans are based on independent actuarial valuations. The other benefit plans have no assets and an annual expense is recorded on an accrual basis based on independent actuarial determinations, considering among other factors, health care cost escalation. As at December 31, 2013, the Corporation estimated that it will make contributions of $5,059,000 to its pension plan in 2014 based on the last actuarial valuation for funding purposes and $1,324,000 to its other benefit plan in 2014. The financial information with respect to the defined benefit pension plans and other benefit obligations is based on the following funding valuations: 39 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 11. Employee benefits (continued): Funding and Assumptions (continued): Union Pension plan Salaried Retirement plan Most recent valuation date Date of next required valuation January 1, 2013 January 1, 2013 January 1, 2014 January 1, 2016 The significant actuarial assumptions adopted in measuring the Corporation's accrued benefit obligations (and costs) are as follows (weighted average assumptions as of December 31): 2013 2012 Pension benefits Other benefits Pension benefits Other benefits Benefit obligations: Discount rate at December 31 Rate of increase in future compensation 4.50% 3.00% 4.50% - 4.25% 3.00% 4.25% - Benefit costs: Discount rate at January 1 Rate of increase in future compensation Expected long-term rate of return on plan assets 4.25% 3.50% 4.25% 4.25% 3.50% - 4.75% 3.50% 4.75% 4.75% 3.50% - The average rate of compensation increase is expected to be inflation with an adjustment for merit and productivity gains. For measurement purposes, an 8% per annum increase in the per capita cost of covered extended health care benefits was assumed for 2014, grading down by 0.50% per annum to 4.50% in 2023. The per annum increase in the per capita cost of medical service plan is 4.00%. The annual rate of increase in the per capita cost of dental benefits is 4.00%. 40 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 11. Employee benefits (continued): Sensitivity Analysis: Assumed discount rates and medical cost trend rates have a significant effect on the accrued benefit obligation. A one percentage point change in these assumptions would have the following effects on the accrued benefit obligation for 2013: Pension benefit plans Discount rate Other post retirement benefit plans Discount rate Initial medical cost trend rate 12. Loans and borrowings: 1% decrease 1% increase $ 11,082 $ (11,082) 8,905 (7,547) (8,905) 9,326 This note provides information about the contractual terms of the Corporation's interest-bearing loans and borrowings, which are measured at amortized cost. Non-current liabilities: Revolving credit facility December 31, 2013 December 31, 2012 $ $ - - $ $ 30,000 30,000 The Corporation has an operating facility of $15 million, which has an $11,753,000 letter of credit outstanding against it (see note 15) at December 31, 2013. The term of this operating facility expires in August 2014. The Corporation has a $50 million revolving credit facility to be utilized for capital expenditures and investments, none of which was drawn at December 31, 2013. The credit facility has a term ending August 31, 2016, and is secured by a pledge of all of the assets of the Corporation. The revolving credit facility bears interest at the 1 month BA rate plus a margin and no repayments are required until maturity. Under its credit facilities, the Corporation is required to comply with certain financial covenants. At December 31, 2013, the Corporation was in compliance with these financial covenants. For more information about the Corporation’s exposure to interest rate, foreign currency and liquidity risk, please see note 17. 41 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 13. Financial instruments: The carrying amounts of financial assets and liabilities reported in the consolidated statement of financial position approximate their fair values. Financial instruments carried at fair value, by the levels in the fair value hierarchy, are as follows: Fair value measurement at reporting date using: Quoted prices in active markets identical assets (Level 1) December 31, 2013 Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Financial assets (liabilities): Derivative instruments: Interest rate hedging contracts $ 22 $ - $ 22 $ - On May 7, 2013, the Corporation entered into two interest rate swaps, each with notional value of $15,000,000 and maturing on August 31, 2016. Under the terms of the swaps, the Corporation pays an amount based on a fixed annual interest rate of 1.56% and 1.46% respectively, and receives a 1 month BA CDOR which is recalculated at set interval dates. As these interest rate swaps have not been designated as hedges, the fair value of these interest rate swaps at December 31, 2013, being an asset of $22,000 (measured based on Level 2 of the fair value hierarchy), has been recorded in other assets and a gain of $22,000 has been recognized in net finance costs for the period ended December 31, 2013. The carrying amounts of interest rate hedging contracts are equal to fair value, which is based on valuations obtained from the counterparty. The mark-to-market value is determined by the counterparty by multiplying the notional amount of the trade with the difference between the forward rate and the contract rate and discounting the resultant asset or liability by an applicable discount factor. 14. Operating leases: The Corporation is committed under operating leases to the rental of property, facilities, and equipment. The Corporation's terminal site is leased from the Vancouver Fraser Port Authority. The term of the lease is until December 31, 2026 with the Corporation having further options to extend the term to December 31, 2051. Charges payable by the Corporation under the lease comprise an annual base land and waterlot rental fee of $5,207,000 (2012 - $5,207,000) and an annual participation rental fee based on the volume of coal shipped. A minimum participation rental fee of $6,494,000 (2012 - $6,494,000) is charged based on a minimum annual tonnage (MAT) of 17.6 million tonnes. A higher participation rental fee per tonne is charged on tonnage in excess of the MAT. In 2013, the Corporation paid $9,870,000 (2012 - $7,962,000) in relation to the higher participation rental fee. 42 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 14. Operating leases (continued): Future minimum operating lease payments for the years ending December 31 (assuming minimum annual tonnes) are as follows: 2014 2015 2016 2017 2018 Thereafter 15. Commitments: Terminal Lease Other $ $ 11,701 11,701 11,701 11,701 11,701 93,607 $ 290 - - - - - Total 11,991 11,701 11,701 11,701 11,701 93,607 The Corporation has provided a letter of credit of $11,753,000 (December 31, 2012: $4,080,000). The Corporation has commitments of $4,111,000 with respect to equipment purchases that are to be delivered and paid for in the next 12 months. 16. Major Customers: The following customers accounted for throughput of greater than 10% of total throughput: Teck Coal Partnership Other customer A Other customer B 17. Financial risk management: 2013 56% 14% 17% 2012 57% 14% 12% The Corporation is exposed to various risks associated with its financial instruments, which include credit risk, liquidity risk and market risk. Further quantitative disclosures are included throughout these consolidated financial statements. (a) Credit risk: Credit risk is the risk of financial loss to the Corporation if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk arises primarily from accounts receivable and cash and cash equivalents. Credit risk can also arise on foreign currency contracts held by the Corporation. 43 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 17. Financial risk management (continued): (a) Credit risk (continued): The Corporation’s exposure to credit risk is influenced by the profitability of coal mining companies, which is heavily impacted by the price of the coal. The Corporation does not have any collateral or security for its receivables. The Corporation monitors the financial health of its customers and regularly reviews its accounts receivable for impairment. As at December 31, 2013 and 2012, there were no trade accounts receivable past due which were considered uncollectible and no reserve in respect of doubtful accounts was recorded. The Corporation limits its exposure to credit risk arising from cash equivalents by only investing in money market funds with a major Canadian financial institution. The Corporation does not expect any credit losses in the event of non-performance by counter parties to its foreign exchange forward contracts as the counter parties are major Canadian financial institutions. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk is: Cash and cash equivalents Accounts receivable Other assets - interest rate contracts (b) Liquidity risk: 2013 61,408 18,218 22 79,648 $ $ 2012 43,873 11,247 - 55,120 $ $ Liquidity risk is the risk that the Corporation will not be able to meet its obligations as they fall due. The Corporation continually monitors its financial position to ensure that it has sufficient liquidity to discharge its obligations when due. The current financial liabilities of the Corporation, which include accounts payable and accrued liabilities, income tax payable and dividends payable to shareholders, have a contractual maturity of less than 1 year. The Corporation also has interest rate swaps with a notional value of $30 million outstanding at December 31, 2013. The Corporation also maintains a $15 million operating facility that can be drawn down to meet short term financing needs. This facility was not used during the year and remained undrawn at December 31, 2013, although the Corporation has an outstanding letter of credit for $11,753,000. The Corporation has a $50 million revolving credit facility to be utilized for capital expenditures and investments, none of which was drawn at December 31, 2013. The credit facility has a term ending August 31, 2016, and is secured by a pledge of all of the assets of the Corporation. The revolving credit facility bears interest at the 1 month BA rate plus a margin and no repayments are required until maturity. 44 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 17. Financial risk management (continued): (c) Market risk: The significant market risk exposures affecting the financial instruments held by the Corporation are those related to foreign currency exchange rates and interest rates. (i) Foreign currency exchange rates: The Corporation holds some cash denominated in foreign currencies and the Canadian-dollar value of these cash balances fluctuates with changes in the exchange rate. As at December 31, 2013, the Corporation held US$12.1 million (2012 – US$10.9 million). A $0.01 increase in the US/Canadian exchange rate would have increased the Canadian dollar value of this cash balance and increased foreign exchange gains by $121,000 for the year. The accounts receivable due from US customers are denominated in US dollars. The US dollar denominated accounts receivable outstanding as at December 31, 2013 was $2,450,000 (2012 - $49,000). The Corporation does not have any outstanding foreign currency contracts at December 31, 2013. (ii) Interest rates: The Corporation has limited exposure to interest rate risk on the cash equivalents. Money market fund returns are correlated with Canadian T-bills and Bankers’ Acceptances of major Canadian financial institutions. The Corporation also has interest rate risk on the revolving credit facility. The revolving credit facility carries an interest rate that floats with market rates. The Corporation has two outstanding interest rate swaps at December 31, 2013. The fair market value of the Corporations interest rate swaps is an asset of $22,000. It has been recorded in other assets and a gain of $22,000 has been recognized in net finance costs for the year ended December 31, 2013. 18. Capital management: The capital of the Corporation consists solely of shareholders’ equity which includes issued share capital and deficit. The objective of the Corporation is to maintain a stable capital base and ensure that the capital structure does not interfere with the Corporation’s ability to meet its distribution policy or fund future projects. The Corporation expects to declare and pay dividends to holders of its Common Shares equal to $0.33 per share per quarter on the basis that the Corporation handles approximately 30 million tonnes of coal or more annually under the existing customer agreements. This approach will be reviewed on a regular basis. The Corporation expects that its quarterly dividends to shareholders will be funded by earnings and operating cash flows, and surplus cash will be added to the Corporation’s available capital for future capital projects. 45 WESTSHORE TERMINALS INVESTMENT CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts expressed in thousands of Canadian dollars, except unit amounts) Years ended December 31, 2013 and 2012 19. Related party transactions: Administration agreement Westar Management Ltd. Management agreement: Westar Management Ltd. - base fee Management agreement: Westar Management Ltd. - Incentive fee Vehicle leases: Affiliate of Westar Management Ltd. Director fees: Director fees 2013 2012 $ 335 $ 325 979 950 4,161 1,939 508 417 390 308 46 Westshore Terminals Investment Corporation Stock Exchange Listing Toronto Stock Exchange Trading Symbol WTE Registrar and Transfer Agent Computershare Investor Services Inc. Vancouver and Toronto Auditors KPMG LLP Vancouver, British Columbia Principal Office 1800 – 1067 West Cordova Street Vancouver, British Columbia V6C 1C7 Telephone: Facsimile: 604.687.2601 604.688.6764 Directors William W. Stinson Corporate Director M. Dallas H. Ross Partner, Kinetic Capital Partners Gordon Gibson Corporate Director Michael J. Korenberg Deputy Chairman & Managing Director, The Jim Pattison Group; Chariman, Canfor Corporation and Canfor Pulp Products Inc. Brian A. Canfield Chair, TELUS Corporation Doug Souter Corporate Director Glen Clark President, The Jim Pattison Group Officers William W. Stinson Chairman, Chief Executive Officer &President M. Dallas H. Ross Chief Financial Officer Nick Desmarais Secretary & Vice President of Corporate Development 47 Westshore Terminals Ltd. William W. Stinson Director & President and Chairman M. Dallas H. Ross Director Glen Clark Director Gordon Gibson Director Michael J. Korenberg Director Doug Souter Director Brian A. Canfield Director Denis Horgan Vice-President & General Manager Nick Desmarais Secretary 48
Continue reading text version or see original annual report in PDF format above